VIEWPOINT: Why Alex Salmond is deluded... Vote against political union is also a vote against currency union

Successful partnerships or unions depend on give and take. Political unions provide for this. Money raised from taxpayers can then be transferred to wherever in the union needs it: in bad times and good, and over time. Our Union, as the UK including Scotland, has worked like that pretty well over the past 300 years.

One element of a political union is common money, underpinned by a currency union. That’s why we all have the pound.

The money we use matters to us all. It must be universally accepted in payment; prices must be stable. And crises like 2008 must not undermine it.

Scotland's First Minister: Alex Salmond

So Mr Salmond’s claim that if Scotland votes ‘Yes’ there will be no change for Scotland’s money is a delusion at best. A vote against political union is also effectively a vote against currency union.

The Scottish Nationalists think that the three political parties who rule out a currency union are bluffing. But why would the rest of the UK wish to support Scotland with their taxpayers’ money?

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Claims that it is in the UK’s interests to continue the currency union forget the potentially open ended longer-term commitments: whatever the short-term trade benefits.

And to insist that Scotland would be stronger than the UK is not self-evident.

The lessons are there in the European Union. The UK rejected the euro because we knew this needed political union.

Monday View: Sir Martin Jacomb is the former chairman of Prudential

The euro’s difficulties won’t be overcome until that can be achieved. It’s not there yet, and the lack of political union today prevents wealth transfers where needed: resulting in mass unemployment in Spain, Portugal and Greece.

Of course Scotland has other options. They all involve change, and risk. Scottish nationalists may feel the risks are worth it. But they need to know what they would be.

Scotland could continue to use the pound but with no formal agreement with the rest of the UK.Some small countries do this: Kosovo uses the euro, Panama the US dollar and Jersey the pound.

The consequence for the Scots would be that they would have no say over monetary policy. The rest of the UK would issue the pound, and look first to its own interests, not Scotland’s.

Another consequence is that banknotes issued by Scottish banks could be in jeopardy. Today these are equivalent to Bank of England notes, but people might think otherwise if the bank was in a foreign country.

Mr Salmond could peg the Scottish pound to sterling. But Scottish taxpayers would need to build a multibillion pound reserve to defend this against speculators, to avoid what happened when the UK itself was forced out of the parity with the developing euro [ERM] as recently as 1992.

Monday View: Sir Andrew Large is former deputy governor of the Bank of England

The Scots could, instead, issue a currency floating against the pound. That has been ruled out by Mr Salmond as too much change – though it’s the best option if Scotland wants real independence.

Finally, Scotland could try to join the euro. But do Scots want to vote in favour of independence only to trade Westminster and the Bank of England for Brussels and the ECB?

Businesses and foreign investors in Scotland would need to have confidence in Scotland’s currency, so the new nation’s budget would have to be solidly balanced to avoid risk of inflation, instability or stunted growth.

This would be a burden for Scottish taxpayers. The promises made by the SNP for pensions, welfare, and education will be expensive.

To lessen the pain, the rest of the UK would be asked for generous terms as oil and other assets and liabilities need to be divided.

The rest of the UK very much wants the union with Scotland to continue, but how generous would they be when they feel they have been divorced?

Is it sensible to take these risks? So much is on offer within the UK under devo max, including the currency union. A ‘No’ vote is surely the better option.

Sir Andrew Large is former deputy governor of the Bank of England and Sir Martin Jacomb is the former chairman of Prudential